How to buy a new car in 5 steps

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When it’s time to get new wheels, it’s important to know the best way to go about buying a new car. Getting it right is important when you consider that automobiles are the second biggest expense in most people’s lives behind what you pay for housing.

In this article, we’ll look at five key steps you need to take in order to pick the right vehicle, get the best auto loan and secure the best price on your car.

How to buy a new car in 5 steps

Best way to buy a new car: Table of contents

Prequalify for a car loan

Begin your research

Get instant price quotes online

Do a rental test drive

Close the deal

But before we go any further, money expert Clark Howard says getting into heavy debt for new wheels doesn’t have to be a given in life; rather, it’s a choice — and one you can avoid.

Understand that if you are going to buy a new vehicle, you’re going to have to eat the cost of depreciation. For this reason, Clark recommends keeping new vehicles a minimum of 10 years once you are in them.

With decades of experience working with people who have had both good and bad experiences buying new cars, Team Clark has come up with a process that can make the car-buying experience as painless as possible.

With that in mind, here are the steps you should take when buying a new car….

1. Pre-qualify for an auto loan

The first step to buying a new car is to see if you can pre-qualify for a car loan through credit union, online bank or traditional bank.

By doing this, you’ll know how much car you can afford before you start shopping. You’ll also know what type of monthly payment you will have to budget for.

We can’t stress it enough: This is a critical first step! It helps you know what your parameters are before you go out there and fall in love with a ride that’s just too expensive for your budget.

You’ll also want to heed this warning from Clark:

“If you cannot afford the payment per month on a 42-month loan, you’re buying more vehicle than you can afford. Taking out a longer loan to get a more affordable payment is a big, fat warning that you’re hurting yourself, harming your finances and limiting your options in life.”

Keep in mind that dealers will typically mark up a loan by about 2% on the average car purchase if you don’t prearrange your financing elsewhere. That’s why Clark so strongly recommends you secure financing on your own as a first step when you’re looking for the best way to buy a new car.

2. Begin your research with several different vehicles in mind

Next, for each of the types of vehicles you’re considering, you’ll want to check the price of the car, reliability and the cost to insure the vehicle.

The annual April auto issue from Consumer Reports has a list of recommended new car buys. This should be one of the first resources you check.

Meanwhile, another reliability study that Clark puts a lot of faith in is the annual Vehicle Dependability Study from J.D. Power.

For 2019, Lexus leads the pack, with Porsche and Toyota tying for second place. The Top 5 is rounded out by Chevrolet and Buick this year.

Finally, when it comes to determining the cost to insure a new vehicle, most big insurance companies make auto insurance coverage calculators available on their websites. That way you can start to get an idea of what you’ll pay to protect your potential new wheels.

You’ll need to factor in the cost of insurance when you are looking at what you’ll be paying monthly to drive your car.

3. Shop online to get instant price quotes

The third step, once you’ve narrowed your search to one or two vehicles and have the approximate cost of ownership for each, is to shop online for instant price quotes.

Compare quotes from the following sites to see if any deals stick out:

CarsDirect

Carvana

USAA

Clark has this additional tip when you’re using the internet as part of your shopping process:

“When shopping online for vehicles, try entering different zip codes in addition to your own. If the savings are large enough elsewhere, get ready for a road trip. Today you can buy cheap one-way flights very easily. Sometimes you’ll get the best price by making your deal in advance, flying to take delivery of the vehicle and then driving it home. The savings are yours to keep and they can be huge.”

If you prefer not to buy online, use the online price quotes you’ve gotten as a guideline. Then call around to local dealers to see if they’ll match the price quote.

You can also avoid dealing with salespeople in person by emailing the Internet department at a dealership and negotiating over with them over email.

Here’s another option to consider: Costco has a car-buying program with pricing that has already been negotiated. In many cases, you’ll save money doing it this way, plus the process of buying will be faster and easier because there’s no bargaining. You might want to check out the Sam’s Club car-buying program, too.

4. Get some one-on-one time with your new car before buying

Next, remember that it’s important for you to feel comfortable with what is bound to be a very large purchase. One way to do this is to look at cars when a dealership is closed, so there’s no salesperson to pressure you. Another way is to set up your own zero-pressure test drive:

“The best way to test-drive a car is to rent it for a day or two,” Clark says. “That’s the ultimate test drive.”

Whatever you do, don’t skip this critical step, especially if you are doing almost all of the car-buying process online.

5. Close the deal

Finally, you’ve almost crossed the finish line!

When you go into the dealer to sign the paperwork, make sure that what’s on the purchase agreement is what you’ve agreed to previously by phone or email.

If it’s not the same, do not go through with the deal. The best way to protect yourself in a dealership is to be willing to walk out. With that in mind, let’s wrap up the loose ends:

Check your financing one last time. If the dealership can beat the lowest rate you’ve already secured on your own and all the other loan terms remain the same, go with the dealer’s financing.

Consider skipping the extended warranty. Cars are built so much more reliably today than they were a generation ago, which means you should be able to skip the extended warranty. But we realize not everyone feels comfortable doing this.

Here’s the thinking Clark has developed on the question of extended auto warranties:

If you can afford the potential cost of car repairs, you should never buy an extended warranty.

If, however, you can’t afford the cost of potential repairs, you may want to consider buying the vehicle manufacturer’s warranty.

Never buy an extended auto warranty from a third-party. If trouble happens, the manufacturer is probably going to be there to stand behind its warranty. A third-party company may not.

Watch out for last-minute junk fees. These so-called “packs” can include phony add-on fees for documents, vehicle etching, fabric treatments and things of that nature. It may sound silly, but could be charged $300 or more just for doing the paperwork on your vehicle or spraying some stuff on your car seats. Push back on anything that seems outrageous and ask to have it removed.

Final thought

Clark has a systematic approach to the best way to buy a new car that puts the power back in your hands as a consumer — not the dealership.

Remember, though, that this is a big purchase and if you buy a new vehicle, he wants you to keep it for at least 10 years.

If you’re not convinced you won’t want something new sooner or you’re not quite ready to pull the trigger on a new car, you may be interested in checking out our 7 steps to buying a good used car.

Want even more info? Listen to Clark discuss the car-buying process on The Clark Howard Show podcast.